3 Steps for Eliminating Uncertainty During the Business Buying Process

Categories: business law

business law

When buying an existing business, eliminating uncertainty in the buying process should be a top priority. Too often, both first-time business owners and established companies rush into transactions, forsaking thorough preparation and negotiation in the interest of simply getting the deal done. Unfortunately, this approach can often lead to disastrous results.

The business-buying process is just that – a process. While you can think of it as a one-time transaction, you can also view it as a series of steps that need to be taken in order to ensure that you are making a sound investment. In broad strokes, the following are three of the key steps involved in eliminating uncertainty in complex business transactions.

Key Steps in Complex Business Transactions

1. Conduct Thorough Due Diligence.

“Due diligence” is a phrase that people like to throw around, though not everyone who uses it understands what it actually means. In a business acquisition, there are two primary forms of due diligence: financial due diligence and legal due diligence.

In layman’s terms, financial due diligence involves ensuring that the price is right. While financial due diligence is something that we tend to leave to the accountants and financial advisors, lawyers will often play a role in the process when it comes to things like reviewing financing documents and understanding the implications of an existing personal or parent guaranty.

On the legal side, due diligence involves things such as assessing litigation risk, reviewing corporate records, and understanding the implications of the business’s existing contractual relationships. Do the business’s client contracts allow for an assignment of rights? Do key vendors have the option to leave in the event of an acquisition? Are there franchise or license agreements that require approvals? These are the types of questions that should generally be answered sooner rather than later.

2. Understand All of the Documentation Involved.

When buying a business, there will usually be many different types of legal documents involved. These may include:

  • Corporate governance documents
  • Financing agreements
  • Intellectual property licenses and assignments
  • Purchase agreements, schedules, and addenda
  • Real estate, vehicle, and equipment leases
  • Shareholder, partnership, and operating agreements

As a purchaser, it is critical to ensure that all of the necessary documentation is in place to allow a complete and seamless transition when it comes time to close. The last thing you want is to find out after the fact that a key asset did not come along in the transaction.

3. Thoroughly Negotiate the Terms of the Purchase Agreement and Other Contracts.

Finally, once you know what documents are involved, you will need to have your attorney review the agreements and negotiate the relevant terms. The terms of many purchase agreements and other contracts tend to be fairly one-sided – especially when they’ve been prepared by the seller’s attorneys. In complex transactions, careful contract review and negotiation are key to avoiding surprises.

Disclaimer: This Article Is Not Legal Advice.

Never rely on an article for legal advice as the law frequently changes, information may not be accurate, there may be exceptions to a rule, and reliance may be detrimental. Always consult one of our experienced attorneys for competent, current, and accurate legal advice.

Crooks, Low & Connell, S.C. | Business Lawyers in Wausau, WI

If you are contemplating a business acquisition in North Central Wisconsin, Crooks, Low & Connell, S.C. can help. Our attorneys have extensive experience representing clients in a wide variety of complex business transactions. To schedule an initial consultation, call (715) 842-2291 or submit our online form today.